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The impact of variable renewables on the distribution of hourly electricity prices and their variability: A panel approach

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  • Tselika, Kyriaki

    (Dept. of Business and Management Science, Norwegian School of Economics)

Abstract

This paper investigates the impact of intermittent renewable generation on the distribution of electricity prices and their variability in Denmark and Germany. We exploit hourly data from 2015 to 2020 and employ a novel panel quantile approach - the Quantiles via moments (MMQR) method. The combination of hourly-specific effects and the quantile approach allow us to estimate the renewable sources effect on various price quantiles while controlling for market dynamics. The results suggest that the merit-order effect occurs in both countries, with wind and solar generation having diverse effects on the electricity price distribution. Thus, policy makers should consider this diversifying effect to develop efficient renewable support schemes. We also explore non-linearities by including different demand levels in our model and investigate price variability. The outcomes indicate that wind generation increases (decreases) the occurrence of price fluctuations for low demand (high demand) in both countries. Meanwhile, in Germany, solar power stabilizes price fluctuations for high demand levels, stronger than wind. Market risk information could be useful for organizations in recognizing beneficial investment opportunities or hedging strategies. We finally aggregate the hourly observations into daily and compare the estimation outcomes. Hourly-related features seem to affect the merit-order effect and its robustness, and a panel approach shall be considered when investigating electricity markets.

Suggested Citation

  • Tselika, Kyriaki, 2022. "The impact of variable renewables on the distribution of hourly electricity prices and their variability: A panel approach," Discussion Papers 2022/4, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2022_004
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    References listed on IDEAS

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    1. Kyritsis, Evangelos & Andersson, Jonas & Serletis, Apostolos, 2017. "Electricity prices, large-scale renewable integration, and policy implications," Energy Policy, Elsevier, vol. 101(C), pages 550-560.
    2. Apergis, Nicholas & Gozgor, Giray & Lau, Chi Keung Marco & Wang, Shixuan, 2020. "Dependence structure in the Australian electricity markets: New evidence from regular vine copulae," Energy Economics, Elsevier, vol. 90(C).
    3. Marshman, Daniel & Brear, Michael & Jeppesen, Matthew & Ring, Brendan, 2020. "Performance of wholesale electricity markets with high wind penetration," Energy Economics, Elsevier, vol. 89(C).
    4. López Prol, Javier & Steininger, Karl W. & Zilberman, David, 2020. "The cannibalization effect of wind and solar in the California wholesale electricity market," Energy Economics, Elsevier, vol. 85(C).
    5. Apergis, Nicholas & Gozgor, Giray & Lau, Chi Keung Marco & Wang, Shixuan, 2019. "Decoding the Australian electricity market: New evidence from three-regime hidden semi-Markov model," Energy Economics, Elsevier, vol. 78(C), pages 129-142.
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    Cited by:

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    2. Donglan Liu & Xin Liu & Kun Guo & Qiang Ji & Yingxian Chang, 2023. "Spillover Effects among Electricity Prices, Traditional Energy Prices and Carbon Market under Climate Risk," IJERPH, MDPI, vol. 20(2), pages 1-18, January.
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    5. Saâdaoui, Foued & Ben Jabeur, Sami, 2023. "Analyzing the influence of geopolitical risks on European power prices using a multiresolution causal neural network," Energy Economics, Elsevier, vol. 124(C).

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    More about this item

    Keywords

    Electricity prices; panel quantile regression; renewable sources; merit-order effect; price variability;
    All these keywords.

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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